Though global foreign investment flows of $1.35 trillion in 2012 were a fifth lower than in 2011, and 2013 flows are expected to be just marginally higher than in 2012 as cash-rich transnationals choose to hold on to cash in an uncertain global environment, the picture is by no means one of unalloyed gloom. For one, as UNCTAD’s World Investment Report 2013 brings out, for the first time in recent history, FDI flows into the developed world ($561 billion) were lower than those into the developing world ($703 billion). And while it is true that FDI flows to each region slowed—from $436 billion in Asia in 2011 to $407 billion in 2012 and from $343 billion in East and Southeast Asia in 2011 to $326 billion in 2012—flows increased to individual countries like Singapore and Indonesia, and fell just a bit in the case of a Malaysia as compared to a 29% fall in the case of India. In a world where GDP is slowing, even collapsing in areas like Europe, FDI flows are taking place with a view to lower costs—so while the higher-tech investments are going to countries like China and Singapore, the labour-intensive ones are by and large going to countries like

Indonesia and Malaysia.

Indeed, the lesson from the UNCTAD study, appropriately sub-titled “global value chains: investment and trade for development”, is that India needs to be part of the global value chain if it wants to be a big recipient of FDI flows. Singapore, which has an FDI stock of $682 billion to India’s $226 billion, has a much higher participation in the global value chain (GVC) of the top 25 exporting economies—while Singapore’s GVC participation rate is 82%, that of India is a mere 36%. Put simply, the countries which are a part of Apple’s global supply chain, for instance, are likely to get more Apple investments than those which are not. Given the level of India’s infrastructure development, industrial and labour laws, and indeed even tax treatment—witness the transfer pricing cases against global MNCs like Microsoft—becoming a greater part of the GVC is an uphill task. In which case, India could be a source of large FDI if it allowed development of its mineral resources—Posco/Vedanta are here for that reason, but the hurdles to investment are very high. But, and this is the good news, were India to be a bit more accommodative here, investments can soar—the $7.2 billion BP investment in RIL in 2011 is a good example of how FDI can dramatically rise. Increase gas prices—on the agenda later today—and foreign investments here will soar.

While it is true it will take India quite some time to become part of an Apple-type hi-tech global value chain, fortunately there are simpler solutions. Japan is looking for alternatives to China for large investments and, as the Dedicated Freight Corridor and the DMICDC city-development project along the corridor show, there are large investments to be tapped here. Were the government to get sensible rules on FDI in multi-brand retail—top MNCs will be meeting commerce and industry minister Anand Sharma on this later today—it won’t take more than a decade for India to better integrate into the global food supply chain. The one area where India already scores well is that investors who have taken a chance on India—returns on investment here are higher than in many other countries—tend to stay invested. UNCTAD talks of reinvested earnings being a large source of FDI—well, in the case of India, around 30% of FDI in FY13 comprised reinvested earnings, up from 23% in FY10.